Insurance-Canada.ca - Where Insurance & Technology Meet

One Step Towards Customized Pricing

Location has an impact on individuals’ everyday activities. Choosing to take up residence far from work increases daily travel time and higher accident risk. Residing in a poorly lit neighbourhood increases the chances of break-ins. Living close to waterways entails flood associated risks.

These variables have been taken into account for years when establishing the amount of an insurance premium. But what about the precision with which we define the location of insured goods and surrounding risks? Wouldn’t better precision have an impact on risk evaluation? Wouldn’t it allow a finer understanding of the risk to underwrite? Indeed, it would.

High precision positioning           

Postal codes have been used for years to locate risk. This method allows us to obtain a quick position, at low fees. However, this practice was providing approximate results, particularly in rural areas. Address ranges have then been used to locate addresses along a road network. Although more precise and allowing the analysis to better reflect reality, this approach still produces imprecisions that could lead to wrong pricing with regards to the risks implied.

We now have access to data providing the ability to locate an address on a lot, or even on the building. This type of positioning can have a significant impact on the risk calculation as it allows, for example, accurate differentiation if an address is within a flooding zone.

According to our experience with the industry, improving the geocoding precision can lead to a return of $2 to $4 per policy. Moreover, the ever-changing nature of postal addresses can justify the use of an online service where a provider determines address conversion to geographic coordinates.

Crisis management in case of a natural disaster

Geographic tools allow users to obtain a better knowledge of the reality on the ground, and to perform simulations to better adapt to emergency situations.

Let’s take the 2016 fires at Fort McMurray as an example. The daily update of fire extent maps allowed us to determine the claims and losses in the destroyed sectors throughout the duration of the fire. Coupled with external data sources, such as meteorological forecast, this information allowed increasing the capacity of the customer service teams to adequately answer the needs.

For more information, we invite you to consult our  white book: One Step Towards Customized Pricing on the understanding of risk.

Vertical integration of location tools

Since premium setting is greatly affected by location, we recommend integrating data and spatial analysis with various business processes associated with the insurance domain. It is possible, for instance, to determine through an automated process the distance between a building and the fire hydrant network. This will reduce the time and quantity of information required for a subscription request.

Cross checking this location using custom developed mapping tools offers the possibility to further customize the premium and by doing so, offering a fair price. These capacities valued by the customers can allow to develop a competitive edge, or even give access to new markets.

Come and meet us

We invite you to join us on February the 28th at booth number 13 during the 15th Annual Insurance-Canada.ca Technology Conference. In addition, I will present a session about “Managing Uncertainty Through Location Intelligencewhich will help you better understand location’s contribution to the insurance domain.

 

Editor’s Note: Jean-Sebastien Guy is Vice-President of Sales at Korem, with responsibility for business strategy and corporate sponsorships. Jean-Sebastien is also a GeoGeek and an advocate for Location Intelligence, a topic that he promotes through frequent speaking sessions and by cpublishing in industry related magazines.

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